‘Actual pay’ law needs swift action by government

BHP Billiton’s call on the government to act so that ­companies don’t have to present shareholders with two different versions of an executive’s pay deserves careful consideration.

The fair value methodology dictated by current accounting standards for share-based payments does enable comparisons across different companies. However, it also necessitates ascribing values to share-based payments that do not necessarily reflect the benefits received by executives.

So requiring companies to continue to report this statutory figure alongside the new law that requires disclosure of the actual pay – bearing in mind there could be a substantial difference between the two – is asking for trouble.

Those interested in executive pay, and the sections related to this topic are undoubtedly the most thumbed in annual reports, want to be able to line up each individual with a single figure – generally fixed remuneration and the value of awards that have vested in the year.

Other jurisdictions that have introduced the reporting of “actual pay", such as the UK, have repealed conflicting requirements. It makes sense to do the same thing here.

In its review on executive remuneration, the Productivity Commission recommended reports should include a plain English summary of remuneration policies and disclose the actual remuneration, as well as an executive’s company shareholdings.

Judging from the submissions made to the Corporations and Markets Advisory Committee, most companies believe this is fair. Given the government also supported this recommend­ation, one hopes it accepts and swiftly acts on CAMAC’s advice on how to best revise legislation that would reflect these ­principles.